"Microsoft is really shaking up this whole market in terms of pricing," said NPD analyst Chris Swenson. Moreover, with Windows Live OneCare Microsoft has also challenged the bundling strategy of its competitors, forcing them to add features instead of selling them separately, he said.

Average retail prices for security suites and PC care packages hit a two-year low in July at $54.57, and the pricing trend continues downward, according to NPD data compiled late last week. With Microsoft's entry, stalwarts Symantec and McAfee have to beef up their products and will have a tougher time selling them at a premium, analysts said.

The introduction of OneCare heightened the battle for consumers' security dollars. There's a lot at stake. Last year, the worldwide market for consumer antivirus software reached $1.95 billion, up 17 percent year-over-year, according to research from Gartner. Symantec dominated the space, taking 70 percent of the pie.

So far, OneCare has made a splash. The product held the No. 2 spot in sales of security suites at U.S. stores in June and July, the first two full months that it was available, according NPD data. OneCare is by far the cheapest option, with an average retail price of $34.02 in July, versus $60.93 for Symantec's security suite and $63.24 for McAfee's suite software.

"I expected a lot more market share gain (by Microsoft), to be honest. It has been pretty pathetic."

--Bari Abdul, McAfee

"Microsoft is entering the market with a bang. They are significantly cheaper than their competitors and will gain market share," said Natalie Lambert, an analyst with Forrester Research. "It will bring down pricing, no doubt, and Microsoft has also caused companies such as McAfee to offer multiple tiers of protection."

Microsoft is not always successful when it enters new markets. Intuit, for example, still leads in small-business accounting, a market Microsoft entered last September with its Small Business Accounting Software 2006. However, Microsoft should be taken seriously in security, Swenson said. "I think they got the mix right," he said.

List retail price

Windows Live OneCare

$49.95 for up to three PCs per year

Symantec Norton Internet Security Suite

$69.99 (single PC)/$119.99 (three PCs)*

McAfee Internet Security Suite

$69.99 (single PC)/ $89.99 (three PCs)*

*McAfee updated its products in August; it previously charged $139.99 for three PCs.

In the wake of OneCare's announcement, Symantec and McAfee are both bundling more functionality than ever into their products to make them more appealing.

McAfee earlier this month released a new family of products and for the first time included a safe Web search feature, a firewall, and PC maintenance tools in VirusScan Plus, its most basic variant, with a list price of $39.99.

"McAfee really responded to the pricing and revamped their product line to deal with the Microsoft threat," Swenson said.

Market leader Symantec is slated to launch updates to its Norton products next month. The company is also working on Norton 360, which will integrate components of Symantec's current security, PC optimization and backup products. Norton 360 is due by the end of March next year.

Two key OneCare features, yet unmatched by the competition, aren't actually security features: OneCare includes free telephone tech support and can be installed on up to three PCs at no extra cost. Both Symantec and McAfee charge for phone support as well as for multi-PC packages.

A force for innovation
The immediate benefit of Microsoft's entry into the market is lower prices, said Jonathan Singer, an analyst with Yankee Group. But that's just for now. In the near future, consumer desktop security is bound to be more innovative, he said.

"Microsoft's entry into the market is going to force innovation on other security vendors, who are going to need to come up with some great technology or find their viability in question," Singer said.

It appears consumers have no real qualms about buying security software from Microsoft, maker of the very software they are trying to protect. This could undermine the brand advantage that Symantec and McAfee claim to have.

"There was a brand premium consumers were paying," Swenson said. "Everybody recognizes Microsoft. A lot of consumers associate Microsoft with good software and Microsoft is able to take advantage of its brand recognition."

Microsoft took market share from all incumbents, according to NPD's data. It particularly gained on market leader Symantec, which saw its unit share for security suites drop 10.7 percentage points in July compared with May, according to NPD. At the same time, McAfee lost 2.7 points and Trend Micro dropped 1.4 points.

Symantec noted that it still leads the market, pointing out that NPD covers retail sales only and does not include sales through Internet service providers or PC makers. "Consumers have shown that they're willing to pay for the superior protection that the Norton products provide," a Symantec representative said in an e-mailed statement.

McAfee was bracing for a big bang from Microsoft, but it hasn't happened, said Bari Abdul, vice president of marketing at the Santa Clara, Calif.-based company. "I expected a lot more market share gain, to be honest," he said. "It has been pretty pathetic."

Abdul argues that both McAfee and Symantec remain much stronger brands in PC security. "Consumers know the value they get from us," he said, even speaking for his archrival Symantec. "I don't think consumers really believe the story that Microsoft is a provider of security software."

Yet, McAfee said it is not going to rest on its laurels. "We compete with Microsoft. If they don't get it right the first time, it doesn't mean they will give up. We need to be on our toes all the time," Abdul said.